Business News: Diesel exports from India to Europe reach record high in September 2023

In the January-August period, India’s diesel exports to Europe averaged at around 215,000 bpd. India’s export-oriented private sector refiners Reliance Industries Ltd (RIL) and Nayara Energy Ltd (NEL) accounted for almost all of diesel exports to Europe in September, the data shows.
“The East-West diesel arb (arbitrage) has re-opened after months of being shut. Tighter supplies from the Middle East and the US in lieu of autumn refinery maintenance, coupled with robust demand in Europe are the key drivers behind this,” said Serena Huang, Head of Asia-Pacific Analysis at Vortexa.
Diesel cracks, or margins, in the international markets have been strong over the past few months due to supply tightness. According to trade sources, diesel exports to Asian hubs like Singapore were more profitable for Indian refiners for a few months preceding September due to relatively lower freight costs vis-à-vis Europe.
However, with the difference between Asian and European diesel prices having expanded considerably, exports to Europe became relatively more lucrative. This is understood to have been precipitated by falling supplies from West Asia and the US, as well as lower fuel production within Europe, as a number of refinery units enter the maintenance period in the three regions even as the continent’s diesel demand remains robust.

Although India–the world’s third-largest consumer of crude oil–depends on imports to meet over 85 per cent of its oil requirement, the country is a net exporter of petroleum products thanks to its refining capacity of over 250 million tonnes per annum, or 5 million bpd, which is higher than its domestic demand. As a large refining hub that has ramped up purchases of discounted Russian oil following Moscow’s February 2022 invasion of Ukraine, India now finds itself playing an increasingly prominent role in the global crude oil and refined products supply map.

Going ahead, while diesel cracks continue to be strong with the recent fuel export ban announced by Russia adding to an already tight market, fuel exports from India may be subdued for a month or two as a few Indian refineries, including some units at RIL’s giant Jamnagar facility, are undertaking maintenance shutdowns. Also, India’s domestic fuel consumption is expected to pick up as the October-December festival season usually sees strong fuel demand, which is likely to be prioritised over exports by Indian refiners, according to industry watchers. Between June and September, fuel demand in India usually dips due to the monsoon rains.

In a surprise announcement on September 21, Russia, the world’s second-largest exporter of diesel, announced a temporary ban on diesel and petrol exports in a bid to ease runaway fuel prices within Russia due to fuel shortage in some regions. Although analysts expect the ban to be short-lived, Moscow has so far not commented on how long it plans to continue with the curbs.

While Europe’s Russian diesel imports have declined significantly since the war in Ukraine broke out, Russia’s fuel export ban could still push up European diesel cracks. This is because a lot of the Russian diesel was being exported to countries like Turkey and Saudi Arabia, which in turn were able to redirect their own diesel production to Europe. With Russian diesel exports on hold, Turkey and Saudi Arabia might be forced to curb exports to Europe. Similarly, some of the diesel supplies to Europe from the US could potentially be diverted to Brazil–another major buyer of Russian diesel.